The tech stock market is presently experiencing a decline that echoes the December turmoil, influencing the dynamics of the resilient 2023 stock-market rally. The Nasdaq-100, known for its year-to-date outperformance, grappled with its most challenging two-week downturn since December, a disturbing shift evident in the recent Dow Jones Market Data.
During this two-week downturn, the Nasdaq-100 registered a 4.6% retreat, culminating in a decline of 0.7% on Friday. This represents the most significant setback since December 23, when the index encountered a 5% pullback. This unnerving trend underscores the receding momentum of the technology sector, previously recognized for its remarkable market-beating performance.
Compounding the concerns is the intriguing observation that the Invesco QQQ Trust Series QQQ exchange-traded fund (ETF), a prominent tracker of the Nasdaq-100, recently breached its 50-day moving average. This occurrence, unseen since March 10, has persisted over three consecutive sessions, signaling a possible continuation of the fading 2023 gains.
The market unease gains further traction from the weakness among key megacap technology stocks, which constitute about 40% of the Nasdaq-100’s value. The decline in these stocks, including giants like Apple Inc., Nvidia Corp., Microsoft Corp., and Tesla Inc., has amplified concerns about an impending broader selloff.
Zooming in on Nvidia Corp., the standout of the tech sector, its AI-driven surge has defied conventional valuation paradigms. Up 180% this year, Nvidia’s market performance overshadows other constituents of the S&P 500, including Facebook parent Meta.
This surge can be attributed to Nvidia’s pioneering position in AI chips and software, coveted across Silicon Valley. These technologies, vital for diverse applications spanning education, media, finance, and customer service, are underpinned by Nvidia’s graphics processing units (GPUs). Notably, Nvidia’s H100 chips, priced around $40,000, are sought after by industry giants such as Microsoft and OpenAI.
This bullish outlook on Nvidia is reflected in its valuation, crossing the $1 trillion mark, making it one of the top five U.S. companies by market capitalization. However, the exuberance is tempered by concerns that the stock is priced for perfection, evident in its elevated price-to-earnings (P/E) ratio of 220, according to FactSet, far surpassing other high-valued tech entities like Amazon and Tesla.
As Nvidia charts a meteoric trajectory, it’s worth it to note its vital role in powering AI models like ChatGPT. Leveraging Nvidia’s GPUs, ChatGPT and other AI models achieve unparalleled performance, thereby fostering an enduring demand. This enduring demand, coupled with Nvidia’s strategic investments in startups and secure supply chain arrangements, underscores a bullish projection for its future.